Monday, March 30, 2015
Earlier this month, Los Angeles-area media reported a somewhat humorous of a valet service that gave away a relatively expensive new car to a random guy claiming that he had "lost the [valet] ticket." Yup, the valet service actually just gave the car to the man who was sporting an Ohio state tattoo. (Of course, this story is not funny for the frustrated car owner).
But wait, the story gets weirder than that (it is, after all, LA, where we worry a lot about our cars...): the valet service sent the responsible employee home and referred the customer to his insurance company. Initial reports indicated that the insurance company did not want to pay for this loss as no theft had occurred... as is always the case, however, the media did not follow up on the end of this story, to the best of my knowledge.
Another valet contract that you must read and that was shared today on the AALS listserv for Contract Professors reminded me of this story. Hat tip to Professor Davis!
Valet companies may have to brush up on their contract writing skills soon...
Writing for Forbes.com, Santa Clara Law Prof Eric Goldman (pictured) reports on a recent SDNY case, Galland v. Johnston. The case is similar to others about which we have blogged recently. Plaintiffs rent out their apartment in Paris through a website. The rental agreement associated with the property provides that defendants would “not to use blogs or websites for complaints, anonymously or not." Notwithstanding this clause, defendants posted reviews of the apartment that were not entirely positive. In one case, plaintiffs offered a defendant $300 to remove a three-star review from a website. The defendant refused and complained to the website. Plaintiff then sued defendants for, among other things, breach of contract, extortion and defamation.
The magistrate judge dismissed all of the claims except the breach of contract claim. Plaintiffs objected to this disposition. Defendants did not, which may be a good reason why the District Court let the breach of contract claim stand while upholding the Magistrate's dismissal of the remaining claims. Indeed, the District Court's opinion did not address the breach of contract claim.
Professor Goldman expresses surprise that the Magistrate allowed the breach of contract claim to stand. Other New York courts have found that contracts clauses that prohibit customer reviews are a deceptive business violate New York's consumer protection laws. Professor Goldman also points out that they violate public policy regardless of New York law.
Thursday, March 26, 2015
Some weeks ago, I blogged here about water rights and shortages in drought-ridden California. Of course, California is not the only state where contractual water rights interface with development and public health concerns.
In Ohio, shale driller Gulfport Energy recently filed suit against the town of Barnesville for rights to extract water for Gulfport’s fracking operations. Gulfport had a contract with Barnesville entitling it to draw water from a local reservoir at one cent per gallon. Under the contract, Gulfport would be able to draw the water unless the village determined that such action would endanger public health. Water rights were subsequently also issued to another driller. In the fall of 2014, the village told Gulfport to stop drawing water from the reservoir because of too low water levels. Gulfport’s suit now asks for adequate assurances of performance of the water contract to ensure that it can continue its fracking operations.
Whether that is a good idea is another story. From a short-term perspective: yes, we need energy preferably domestically sourced to avoid international supply interruptions and the geopolitical problems that are associated with importing energy raw materials. But fracking and fossil fuel production in general are associated with other severe problems including heavy water usage in the case of fracking. Such water, the argument goes, is better used for other things such as farming and household consumption.
Business as usual for fracking companies may not be the best idea seen from a societal point of view. Contracts rights are only a small part of this much bigger problem. However, time seems to have come for governments to incorporate escape clauses not only for “public health concerns” into water contracts, but also for drought concerns. This is not always done, as the above case shows, but such a relatively easy step could help solve at least some contractual disputes. In times of increasing temperatures and decreasing rainfall in some areas, such contract drafting may well make sense.
Today's New York Times reports that Microsoft will require the companies with which it partners, its contractors and vendors who employ more than 50 workers, to provide their employees who do work for Microsoft with 15 days of annual paid sick leave and vacation time. Microsoft expects that it will have to increase its pay to these partners to help them with the added expense of the policy.
As the Times points out, it is a very American approach to the protection of workers' rights. Congress will not act and only a few state legislatures have done so. Microsoft, like other large technology companies, can afford to provide decent wages and benefits to its workers. However, companies increasingly prefer to contract work out to small companies that do not treat their workers nearly as well.
The Times notes that the gap is not only between skilled computer programmers and unskilled or semi-skilled janitors or groundskeepers but also between whites and African Americans and Latinos. While the latter, traditionally-underrepresented minorities account for our 3-4% of tech workers, they account for 75% of janitorial and maintenance workers. Eschewing Google's and Facebook's approaches of replacing contract workers with its own employees, entitled to company benefits, Microsoft has explained its move in a manner also consistent with the great American tradition of enlightened self interest. Microsoft general counsel explained that: 1) happy workers are more productive; and 2) sick workers who come to work can infect others.
This move can have a big impact, especially if other major companies follow Microsoft's lead, but I'm not sure that the effects will all be good for workers. If a contractor has some workers that work for Microsoft and some that don't, the Microsoft jobs suddenly become highly sought-after. A company may try to stay below the 50-employee threshold to avoid the private regulation. Or it may divide Microsoft work among its staff (in the interests of internal morale), which might dilute the effects of the regulation. If you do only 20% of your work for Microsoft, do you only qualify for three days of vacation/sick leave? It may take a few years (and a few contracts disputes) to work out the kinks.
BNSF Railway Company (BNSF) and Alstom Transportation, Inc. (Alstom) had a Maintenance Agreement that included an arbitration clause. BNSF notified Alstom that it was eliminating locomotives from its active fleet, which triggered a clause in the Maintenance Agreement that required discussions so that an economic adjustment could be made in Alstom's favor. BNSF then terminated the Agreement before any such discussions took place.
BNSF sought declaratory relief in a District Court, but the District Court granted Alstom's motion to compel arbitration. The Arbitration Panel (Panel) found that BNSF's termination of the contract violated the contractual duty of good faith and fair dealing and awarded Alstom damages. When Alstom sought to enforce the award in the District Court, BNSF moved to vacate. The District Court granted the motion to vacate, finding that the Panel had not applied Illinois law correctly.
In BNSF Railway Co. v. Alstom Trans., Inc., the Fifth Circuit vacated the District Court's order and remanded with instruction to reinstate the arbitral award. The Fifth Circuit noted that the Supreme Court has instructed that district courts’ review of arbitrators’ awards under § 10(a)(4) is limited to the “sole question . . . [of] whether the arbitrator (even arguably) interpreted the parties’ contract.” Oxford Health, 133 S. Ct. at 2068. After a brief review of the interpretive options, the Fifth Circuit concluded that "BNSF fails to show that the Panel could not have been interpreting the Agreement when it concluded that Illinois law imposes a limitation on the right to terminate 'without cause' based on the covenant of good faith and fair dealing." The Panel also interpreted the Agreement in determining damages. For the purposes of judicial review, it does not matter whether the interpretation was right or wrong.
Wednesday, March 25, 2015
Adi Ayal & Uri Benoliel, Revitalizing the Case for Good Cause Statutes: The Role of Review Sites, 19 Stan. J.L. Bus. & Fin. 331 (2014)
Aditi Bagchi, The Political Economy of Regulating Contract, 62 Am. J. Comp. L. 687-738 (2014).
Christopher R. Drahozal & Erin O'Hara O'Connor, Unbundling Procedure: Carve-outs from Arbitration Clauses, 66 Fla. L. Rev. 1945 (2014)
Robert W. Emerson, Assessing Awuah v. Coverall North America, Inc.: The Franchisee as a Dependent Contractor, 19 Stan. J.L. Bus. & Fin. 203 (2014)
Sanne Jansen, Price Reduction under the CISG: A 21st Century Perspective, 32 J.L. & Com. 325 (2014)
Sarath Sanga, Choice of Law: An Empirical Analysis, 11 J. Empirical Legal Stud. 894 (2014)
Tuesday, March 24, 2015
The following guest post is from Tina Stark, a Professor in the Practice of Law (retired) and the Founding Executive Director of Emory's Center for Transactional Law and Practice. Tina is one of the pioneers of teaching transactional skills and the founder and first Chair of the AALS Section on Transactional Law and Skills. She is also the author of Drafting Contracts: How and Why Lawyers Do What They Do and the editor and co-author of Negotiating and Drafting Contract Boilerplate. Welcome, Tina!
When I speak about contract drafting, I often state that contract drafting sits at the intersection of law and business. Students can learn about style, organization, process, interpretation, ambiguity, and clarity, but if they don't know the law and understand the deal, the contract will be ripe for litigation.
In Buckingham v. Buckingham, 14335 314297/11, NYLJ at *1 (App. Div., 1st, Decided March 19, 2015), a well-known matrimonial lawyer botched the drafting of a prenuptial agreement. As drafted, the relevant provision stated that if the husband sold "MS or any of its subsidiaries or related companies," he was obligated to pay the wife a share of the proceeds. But the provision did not address the consequences of the husband's sale of any shares he owned in those businesses. Stated differently, the agreement gave the wife the right to proceeds from asset sales, but was silent about the right to proceeds from stock sales.
The couple married; time passed; and the marriage failed. Along the way, the husband sold shares of his business and the ex-wife wanted her share of the proceeds: about $950,000. The husband and the courts said "no." The court reasoned that the relevant language created a condition to the husband's obligation to pay sale proceeds to his ex-wife, but that language encompassed only asset sales. Therefore, because the husband's sale of shares did not satisfy the condition, the wife had no right to any proceeds. (Technically, there was a condition to an obligation and an obligation. The condition to the obligation was an asset sale, and the obligation was the husband's obligation to pay the wife a share of the proceeds. The husband's obligation to pay created the wife's reciprocal right to receive the proceeds.)
As the dissent points out, the business deal was almost undoubtedly that the wife was entitled to money if the husband received proceeds from a business disposition. But the court held the provision unambiguously applied only to business dispositions that were asset sales, and it refused to rewrite the provision. Bottom line: the wife’s lawyer didn’t know the law. She didn’t understand the difference between an asset sale or a stock sale and language embraced only the former. This is a classic case of a business issue driving the litigation, not unclear, ambiguous drafting. It was “bad” drafting, but not for reasons of style, lack of clarity, or ambiguity. It was “bad” because it didn’t memorialize the parties’ intent.
And that's why matrimonial lawyers need to understand business and business law and how drafting sits at the intersection of law and business.
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Monday, March 23, 2015
The case is DIRECTV, Inc. v. Imburgia. You can read all about it on SCOTUSblog.
The issue is:
Whether the California Court of Appeal erred by holding, in direct conflict with the Ninth Circuit, that a reference to state law in an arbitration agreement governed by the Federal Arbitration Act requires the application of state law preempted by the Federal Arbitration Act.
The case involved a consumer contract with a class action waiver in Section 9. It also provided as follows: “if . . . the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire Section 9 is unenforceable.” However, Section 10 states that "Section 9 shall be governed by the Federal Arbitration Act."
The California Court of Appeal for the Second District affirmed the superior court's denial of DirectTV's motion to compel arbitration. Because the class action waiver violates California law, the entire arbitration clause is unenforceable. We'll see what SCOTUS (or at least five of its members) has to say about that!
As reported here in Onward State, Former Penn State University President Graham Spanier (left) is now suing his former employer for breach of contract, while also naming the University and former FBI Director Louis Freeh in a defamation claim. The allegations stem from the Freeh Report, which Mr. Freeh undertook as a private consultant hired to look into allegations of sexual misconduct within the Penn State athletics program. The complaint alleges that the University breached its separation agreement with him by publicizing the Freeh Report and through other statements. Mr. Spanier has set up a website purporting to refute the findings of the Freeh Report.
In a potentially very interesting, bizarre and short(!) opinion, the Delaware Supreme Court weighed in on a hypothetical case not before it in Friedman v. Khosrowshahi, No. 442,2014 (March 6, 2015). The Court said that if a stockholder brings suit alleging breach of a stockholder approved plan as a contract, and she seeks recovery under contract law, such a plaintiff would not have to make demand on the board before proceeding in a derivative action because "directors arguably have no discretion to violate the terms of a stockholder adopted compensation plan whose terms cannot be amended without the stockholders’ approval."
MarketWired.com reports that Canadian purchasers of Lenovo computers are seeking $10 million in breach of contract damages for Lenovo's violation of their privacy rights by installing Superfish on their personal computers. Superfish allegedly makes it possible for third parties to use wireless networks to steal private information off of Lenovo computers. The Statement of Claim (Canadian, we assume for Complaint) can be found here.
And, as Spring training is underway and Opening Day is only a fortnight away, we should mention the ongoing contract dispute between the Chicago Cubs and the parties with whom the team entered into a revenue-sharing agreement relating to rooftop seating across the street from Wrigley Field. The Cubs want to put up a video board that the Sheffield Avenue property owners claim will block views in violation of the terms of the revenue-sharing agreement. The latest news on the subject matter can be found on Crain's Chicago Business here. The Cubs' opposition to plaintiffs' motion for an injunction is here. As a life-long Cubs fan, I stand by my view that not having to watch the Cubs play actually enhances the value of the seats, but hope springs eternal.
As reported here in the Cranston Patch, a teachers' union is suing a school district for breach of contract and violations of civil and religious rights. The school district decided to hold classes on religious holidays, including Good Friday, but to permit teachers two days of religious leave each year. The school district then denied leave to teachers who sought to use their leave on Good Friday. The community is predominantly Catholic, and it is likely that the school district had not plan for replacing the 200 teachers who applied for leave on Good Friday. Heavy snows and the large number of snow days this year might also have played a role.
Thursday, March 19, 2015
The problem with constructive consent, or substituting "manifestations of assent" for actual assent, in consumer contracts is that consumers often aren't aware what rights they've relinquished or what they have agreed to have done to them. Too bad for consumers, right? Well, it's also too bad for companies. Companies that rely on contracts to obtain consumer consent may find that what suffices for consent in contract law just won't cut it under other law that seeks actual consumer consent. Michaels, the arts and crafts store chain, found that out the hard way. They were recently hit with two class action lawsuits alleging that their hiring process violates the Fair Credit Reporting Act (FCRA). Job applications clicked an "I Agree" box which indicated "consent" to the terms and conditions which authorized a background check on the applicant. As this article in the National Law Review explains, the FCRA requires that job applicants receive "clear and conspicuous" standalone notice if they are seeking consent from applicants to obtaining a background report. A click box likely won't (and shouldn't) cut it. Contracts that everybody knows nobody reads shouldn't be considered sufficient notice. It would, of course, be much simpler if contractual consent were more aligned with actual human behavior....
Wednesday, March 18, 2015
The St. Thomas Law Review has published some of the papers presented at the Ninth International Conference on Contracts (KCON IX) that the St. Thomas University School of Law hosted in 2014. It's nice to see these in print!
Reza Beheshti, Comparative and Normative Analysis of Damages under the SGA and the CESL, 26 St. Thomas L. Rev. 413 (2014)
Jennifer S. Martin, Contracts: An Introduction to a Symposium and a Few Additional Thoughts, 26 St. Thomas L. Rev. 375 (2014)
Kingsley Martin, Emergence of Contract Standards and Its Future Impact on Legal Education, 26 St. Thomas L. Rev. 570 (2014)
John E. Murray, Jr., The Judicial Vision of Contract--The "Constructed Circle of Assent" and Printed Terms, 26 St. Thomas L. Rev. 386 (2014)
Joseph M. Perillo, Donee Beneficiaries and the Parol Evidence Rule, 26 St. Thomas L. Rev. 496 (2014)
Jeffrey Ritter, Designing and Constructing Commercial Agreements in the 21st century, 26 St. Thomas L. Rev. 506 (2014)
Roni Rosenberg, The Contract: Between Contract Law and Criminal Jurisprudence, 26 St. Thomas L. Rev. 444 (2014)
Amy J. Schmitz, Introducing the "New Handshake" to Expand Remedies and Revive Responsibility in eCommerce, 26 St. Thomas L. Rev. 522 (2014)
Robin West, The Right to Contract as a Civil Right, 26 St. Thomas L. Rev. 551 (2014)
Tuesday, March 17, 2015
One of the great pleasures of working on the blog is the opportunity to have virtual colleagues as a subject-matter specific supplement to one's local colleagues. I have for many years admired Nancy Kim's scholarship, and she has been for me, a sounding board and a gateway for entering into the scholarship on electronic contracting, with an especial focus on wrap contracts.
Now, I am happy to announce that we have collaborated on an article, "Internet Giants as Quasi-Governmental Actors and the Limits of Contractual Consent." The article is forthcoming with the Missouri Law Review and available in draft on SSRN. Here is the abstract:
Although the government’s data-mining program relied heavily on information and technology that the government received from private companies, relatively little of the public outrage generated by Edward Snowden’s revelations was directed at those private companies. We argue that the myth of contractual consent muted criticisms that otherwise might be directed at the real data-mining masterminds. By clicking “agree,” consumers are deemed to have consented to the use of their private information in ways that they would not agree to had they known the purposes to which their information would be put and the entities (including the federal government) with whom their information would be shared. We also question the distinction between governmental actors and private actors in this realm, as the Internet giants increasingly exploit contractual mechanisms to operate with quasi-governmental powers in their relations with consumers. We propose that, in their efforts to better protect consumer data, regulators and policymakers should demand more than mere contractual consent as an indicator of consumers’ grant of permission for the use of their data.
Here is a short (2 minute) video of me discussing the article:
I have been traveling the past two weeks, leading a group of 25 of my law students on a two-credit course on International Humanitarian Law in Israel and Palestine. How does a U.S. contracts prof teach a course on the law of armed conflict in Israel? I get by with a little help from my friends. We teamed up with an Israeli law college, Sha'arei Mishpat Academic Center (SMAC), and I had the pleasure of c0-designing, co-directing and co-teaching the program with the very accomplished Professor Yaël Ronen (pictured). My students' experience was enriched by the fact that eight Israeli students from SMAC also participated in the course.
We partnered with Mejdi Tours, which provided us with two tour guides, one Jewish Israeli, one Muslim (Palestinian) Israeli. Together they gave us their versions of the dual narrative that continues to unwind, side-by-side, each informing the other even when the two sides do not acknowledge the other's perspective. Nothing beats teaching a course in the place where the subject matter of the course has been written and is being supplemented on a continual basis.
My students chronicled our trip as we went, and those chronicles are in the process of being posted on a Mejdi Tours blog. While we were teaching our students international humanitarian law, they gave me a lesson in the art of the selfie.
Thanks to Myanna Dellinger and Nancy Kim for keeping stuff happening on the blog while I was off on my frolic and detour. We now return to our regular programming. . . .
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Monday, March 16, 2015
The New York Times reported yesterday on the rise of a new type of non-disclosure agreement in connection with home construction. Basically, rich people associated with the tech industry are making everyone who works on their homes sign sweeping non-disclosure agreements.
Times reporter Matt Richtel posed a number of questions to workers outside a home that, court documents from a different case reveal, is being renovated for an undisclosed Facebook executive (pictured). He was able to extract only answers like, "I'm an electrician working on a house." As to which house, workers would gesture towards a neighborhood and say "one of the ones over there." But the mystery was not too difficult to solve, as workers swarmed "like ants" on the home, and they have been working on it for two years.
Matt Richtel does a great job highlighting the irony of the situation. He quotes Facebook founder Mark Zuckerberg, commenting on Facebook's privacy policies, as follows: “People have really gotten comfortable not only sharing more information and different kinds, but more openly and with more people.” And yet, in correspondence disclosed in the other case referenced above, Mr. Zuckerberg's attorney wrote, "Mr. Zuckerberg goes to great lengths to protect the privacy of his personal life.”
There is no necessary contradiction between Mr. Zuckerberg's desire to maintain his own privacy and his belief that other people choose not to protect their own. But Facebook has been pretty aggressive in eroding privacy, in part through a libertarian paternalism in which all the default choices lead to a surrender of privacy, or through extracting waivers of privacy rights by contractual means that do not rise to the level of meaningful, knowing consent.
So yeah. This is ironic.
The BBC reports that a German biologist, Stefan Lanka, offered 100,000 Euros to anyone who could prove that measles is a virus. A German doctor, David Barden, gathered evidence from medical studies an claimed his reward. A court found in Dr. Barden's favor. Lanka, who is committed to the view that measles is a psychosomatic response to traumatic separations, has vowed to appeal. It's not clear what Lanka was thinking. He may believe that no proof exists; or he may have believed that no court would be willing to conclude, as a matter of law, that the proof was adequate, and then he could shout to the rooftops that he has not been refuted.
If you would like to learn more about why Mr. Lanka does not believe in viruses, you might find this 20-year-old article on HIV of interest.
Saturday, March 14, 2015
Secret backroom deals conducted in hotels and private apartments. Dedicated phone lines. Market-sharing agreements and price fixing activities. Million-dollar deals. Thinking oil, diamonds, shares or foreign exchange? Think again! Eleven of the top … yoghurt makers in France, including American-owned Yoplait, were recently fined approx. $200 million for the above activities, which affected about 90% of the French yoghurt market and thus “seriously disturbed” it.
Yoplait, the majority of which is owned by U.S.-based General Mills, Inc., actually revealed the cartel under a French law that allows companies to self-report their price fixing activities in exchanged for reduced punishment. So far, the company has received no fines.
Apparently, the French competition authorities are cracking down on deals such as the above. The French government has also recently started cleaning out, so to speak, the ranks among shampoo, toothpaste and various cleaning product manufacturers.
Price fixing does, of course, disturb the free market forces. When shopping in this country, it is remarkable how close prices for various everyday items are. However, that does not mean that prices have been set in any illegal way. Retailers such as gas stations, which are well-known at least in the Los Angeles area to have almost the same prices all the time, could just stick the head out the window to see how the competitors price their products. But if mere yoghurt is worth the above risk, one wonders what else may be going on behind the scenes in the global corporate world. Perhaps it’s better not to know.
Wednesday, March 11, 2015
The Southeastern Association of Law Schools (SEALS) is pleased to once again offer its Prospective Law Professors Workshop as part of its annual meeting. This two-day workshop is for those seeking law teaching jobs in Fall 2015. The Prospective Law Professors Workshop will run on Tuesday, July 28, and Wednesday, July 29, at the Boca Raton Resort & Club.
The workshop will include practice interviews, practice jobtalks, guidance on drafting CVs and FAR forms, and several panel discussions geared toward prospective law professors. There is no supplemental fee to participate. Participants in the workshop need only pay the standard SEALS registration fee.
The number of participants will be limited. For more information on the program, including how to apply, please visit our website at http://sealslawschools.org/seals-prospective-law-professors-workshop/
We all know the feeling of having to pay twice as much - or more - for food and drink in airports compared to most other places. Two vendors at the Los Angeles International Airport (“LAX”) are now taking this practice to the next level: they are suing each other for alleged contracts violations and price gouging.
Boutique retailer Kitson Stores runs two stores at LAX. It apparently charges around $2.55 for a liter of water (roughly a quart) at those stores. Competitor Hudson Group charges $5 a bottle (size unknown, but presumably roughly the same and expensive at any rate). Kitson is alleging that Hudson is gouging passengers with its “hugely inflated” water prices and is trying to force Kitson out of business at the airport. Hudson is countering that Kitson is hardly concerned about consumer price protections, but that this lawsuit is really a diversion from Kitson’s alleged contractual violations.
Whichever turns out to be the case, airport prices are well known to be very high for everything from chewing gum to dinner. Perhaps higher-than-usual rent prices are to blame, at least in part. Of course, airport retailers also enjoy a captive market (almost literally). Consumers are, however, still allowed to bring an empty bottle to the airport and fill it with free water from, for example, the increasing number of “bottle filling stations” that are thankfully also appearing in more and more airports. This does seem to be a case of fake altruism, but is nonetheless a lawsuit that may resolve an important issue.